CHINA RAISES INTEREST RATES TO COUNTER INFLATION RISK

Hong Kong, February 9 (NYT)- China on Tuesday raised interest rates for the third time since October, in the latest sign that the authorities were trying to temper economic growth and prevent inflation from escalating further.

The central bank in Beijing raised its benchmark one-year deposit rate by a quarter of a percentage point, to 3 percent, and its one-year lending rate by a similar amount, to 6.06 percent.

The timing of the announcement, at the very end of the Lunar New Year holiday, which has kept mainland Chinese markets closed for the last week, was in line with what many analysts had expected.

In fact, many economists forecast still more increases and other measures this year as the battle to combat price increases intensifies. “There are plenty of reasons to expect inflation to pick up further in the next few months,” Brian Jackson, an analyst at the Royal Bank of Canada in Hong Kong, wrote in a note after the rate increase announcement Tuesday.

“Gradual policy rate increases in the months ahead should help to slow down investment in parts of the economy at risk of overheating, while also reducing the risk that more aggressive and disruptive action may be required at a later stage,” he wrote.

Buoyed by ample lending and extensive state investment projects, the Chinese economy powered ahead last year, overtaking that of Japan to become the world’s second-largest economy after the United States.

Data released by the National Bureau of Statistics on Jan. 20 put the pace of growth at 10.3 percent for 2010, up from 9.2 percent in 2009 and significantly above what analysts had expected. Inflation came in at 4.6 percent for December, well above what the authorities are comfortable with, and could rise further, economists believe.

As in many other emerging economies, rapid growth has combined with easy credit and inflows of cash from overseas to push up asset and consumer prices this year.

Beijing has reacted with a range of tools aimed at containing price increases. These have included measures aimed specifically at the hot real estate sector -like property taxes recently announced for some cities- and instructions to the country’s state-controlled banks to lend less.

The reserve requirement ratio for state-controlled banks -which effectively dictates the amount that lenders have to set aside against loans, and thus affects how much they can lend- has been raised seven times since early 2010.

Currency appreciation will also most likely be part of Beijing’s efforts to curb inflation over 2011, said Mr. Jackson, the R.B.C. economist.

The pace of any such increases, however, is likely to remain muted, analysts and bankers with knowledge of policy makers’ views have said. The renminbi has already been rising at an annualized rate of 5.7 percent against the dollar since China broke the currency’s peg to the dollar last June.

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